Construction invoices in Latvia with the domestic reverse charge

What counts as a construction service

Construction services are any construction work and any design included in a construction services contract (Section 142(1)). Construction work is work on a building site or in a building to create, place, rebuild, renovate, restore, conserve or demolish a structure or install utility networks (Construction Act, Section 1(2)). Since 1 January 2018 the rule covers every kind of construction work, including one-off repairs.

The value includes building materials, structures and equipment that become part of the building, and hire of tools and machinery (Section 142(5)). Selling building materials without the work is not a construction service.

State Revenue Service examples: in and out

• In: interior finishing such as tiling, laying laminate, hanging wallpaper and painting walls.
• In: supplying windows with fitting, suspended ceilings that affect interior walls, replacing flooring, concrete drilling and cutting for construction work.
• Out: replacing water meters, towel rails or shower units in a flat, adjusting and repairing windows, replacing sockets and switches without affecting walls.
• Out: maintenance, cleaning or equipment replacement that does not affect the building’s internal and external walls, and inspection and servicing of utility networks.
• Design is in only when it is part of a construction services contract. The building cost standard LBN 501-17 is not the test.

When the rule applies

• The service is supplied in Latvia and both the supplier and the customer are VAT registered (Section 142(2)).
• It also applies to a state or municipal body buying construction through public procurement or as a public partner; if it is not VAT registered, it registers first (Section 142(3), Section 58).
• If the customer is not VAT registered, for example a private person, the invoice carries ordinary 21% VAT.
• The service is treated as supplied when the acceptance certificate for each stage is signed, and at least once every 12 months (Section 32(5)).

What the invoice must show

• The customer’s Latvian VAT number (VAT Act, Section 125(1), point 6). Without it the reverse charge cannot apply, since both parties must be VAT registered.
• The value of the goods or services without VAT (Section 142(6)).
• No VAT rate and no VAT amount (Section 129(3)). The total due equals the total without VAT.
• The words “nodokļa apgrieztā maksāšana” (reverse charge, Section 125(1), point 16).
• Every other ordinary detail: date, number, both parties’ names, addresses and VAT numbers, description, quantity, unit and price without VAT.

Payment

The customer pays the invoiced amount without VAT, and only by non-cash means (Section 142(12)). The State Revenue Service treats a bank card payment as non-cash.

In the VAT return

• The supplier reports the value in row 41.1 and lists every invoice in part III of the VAT 1 report whatever the amount, even below 150 euro (Cabinet Regulation No. 40, points 17.3 and 31.3).
• The customer calculates VAT at 21% and reports it in row 52 as output tax and in row 62 as input tax, and also in row 66 if the purchase is not used for taxable supplies. In part I of the VAT 1 report each invoice carries the code “R3”.
• The customer reports the tax in the period in which it received the goods or service and the invoice (VAT Act, Section 124(4) and (5)).

In a Peppol e-invoice

The line takes VAT category AE (reverse charge) at a rate of 0, and the VAT breakdown carries the reason code VATEX-EU-AE or the text “Reverse charge” (rule BR-AE-10). BR-AE-02 requires the seller’s VAT number and the buyer’s VAT number or registration number; BR-AE-05 requires the 0 rate.